The dollar fell on Friday to its weakest in almost five months against major currencies on investor worries that the United States would lose its AAA rating, though Asian stocks headed for a solid weekly gain.
The dollar's descent was sparked on Thursday when Standard & Poor's cut its outlook on Britain's top rating to negative, bringing into focus other AAA-rated countries that are running into higher debt in an attempt to boost their economies with big spending plans.
Although signs of hope in the global economy are helping to support Asian stocks, worries are also growing about the strength of any recovery and whether the shift into riskier asset such as oil is justified.
A weaker dollar is also strengthening Asian currencies, which is bound to hurt the export-dependent continent and further raise doubts among investors about whether a gain of more than 50 percent in Asian shares excluding Japan since early March is excessive.
"Markets all around the world appear to be looking for direction, and any chance of a U.S. downgrade would really hit U.S. assets such as the dollar and stocks," said Masayoshi Okamoto, head of dealing at Jujiya Securities.
"For Japan, this situation comes just after earnings have come out and companies have set their currency rates, many of them at 95 yen. The chance of any further yen rise really paints a gloomy picture."
The dollar index .DXY, a gauge of its performance against six major currencies, fell as low as 80.257, its weakest since late December and was last down 0.2 percent at 80.302.
The slide in the U.S. currency comes as investors are finding it harder to ignore the effect of the Federal Reserve's zero interest rate policy and its efforts to keep long-term rates low through direct purchases of U.S. government debt.
The dollar slipped 0.3 percent from late U.S. trade to 94.08 yen after falling as low as 93.86 yen on trading platform EBS, its lowest since mid-March.
The euro rose 0.4 percent to $1.3945, its strongest since early January. Sterling, despite the S&P action, rose as high as $1.5893, its highest since early November according to Reuters data, and was last up 0.2 percent at $1.5885.
"S&P gave a clear criteria that a country whose government debt burden is approaching 100 percent of GDP could have its rating downgraded," said Hideki Amikura, deputy general manager of forex trading at Nomura Trust and Banking.
"That prompted investors to think they should not be so optimistic about credit rating on the United States."
But U.S. Treasuries recovered after concerns about debt levels sent prices tumbling on Thursday. The Treasury's announcement that it would sell $101 billion in notes next week also sparked supply concerns.
Benchmark 10-year U.S. Treasury notes rose about one point, sending yields down to 3.34 percent from the 3.37 percent level hit on Thursday that had marked the highest yield on an intraday basis in nearly two weeks.
